I want to go semi-retired - help me plan

System

This discussion was created from comments split from: Annuities versus Drawdown versus both.

Bumblebee2222

Opinions/advice please. I'm 55. Started pensions savings late in life, was often self employed, so not a lot - 2024 value £89k (was at a high of £91k in past 2 years). Current work pension £4500, other tiny pot has a small in death benefit but not much so advised to leave it alone. Full state pension due but not until 2036 at 67, only two years NI left to pay and I'll do that. I pay into life insurance policy to leave something for my children and critical illness policy (though latter I guess I need to cancel as I think it only pays out what you earn via employment - not self employed income).

I want to go semi-retired now and drop down to working 3-4 days a week. I gave notice at the job which is running me into the ground mentally, for June, when my final mortgage payment comes out and will then aim to earn enough to pay the bills with casual or other part time work, trying to put off taking that pension pot as long as possible but at the same time feeling maybe better to take what I can now. 

When the time comes to decide, I'm wondering whether to maximise my income until state pension age with a 25 year fixed annuity or go for a lifetime annuity would be more sensible for me than drawdown? Partner's health is ailing and time feels precious. Partner has zilch in terms of pensions/savings and has debt - self employed and never learned any financial literacy; feels as though has one foot in the grave now.

I want to understand tax implications and keen to hear your thoughts on front loading any annuity over next 12 or 25 years when I'm likely to be more active in life vs. a lifetime fixed annuity vs. drawdown. What would you choose to get basic bills such as council tax/utilities covered? I realise I'm talking about small sums regardless.

Anyone willing to share experience of how their annuity choices panned out? Any regrets about going for annuity vs. drawdown or vice versa? Am I right in thinking the younger you start an annuity, the more likelihood of it being the better option if you think you will live longer?

We've heard age 55-65 described as 'sniper's alley' - and anecdotally we do see that. Both my parents died suddenly age 63 and didn't get to enjoy retirement. I don't want to do the same just work until I die. I've made healthier life choices and my health is better than theirs at this age but I read tributes to peers passing away every month it seems.

I plan to keep paying in, albeit modestly, to a pension even if I crystallize current one. My feeling at the moment is that time is more valuable than money. Lived month to month on low pay for the past 15 years so used to a frugal lifestyle and the size of my pension pot means not much to play with whichever way I go with it. Any advice/lived experience on this welcome. How would you proceed and when would you start to take the pension?

Marcon

Bumblebee2222 said:

Opinions/advice please. I'm 55. Started pensions savings late in life, was often self employed, so not a lot - 2024 value £89k (was at a high of £91k in past 2 years). Current work pension £4500, (A) other tiny pot has a small in death benefit but not much so advised to leave it alone. Full state pension due but not until 2036 at 67, only two years NI left to pay and I'll do that. I pay into (B) life insurance policy to leave something for my children and (C) critical illness policy (though latter I guess I need to cancel as I think it only pays out what you earn via employment - not self employed income).

Any advice/lived experience on this welcome. How would you proceed and when would you start to take the pension?

Yes. Check what you've got and don't waste money. 

A - not sure what you mean by 'in death benefit' or who advised you to 'leave it alone'
B - are you sure that's what it will do? There are different types of life policy and if this is term life(?) it might not pay out at all unless you die before the end of the term (or stop paying the premiums)
C - why pay for something unless you are sure it will do what you want it to do?

af1963

Some indication of the level of spending that you think you will need would be helpful. 

Is the "£4500 work pension" an *annual* pension of £4500 or is that the total value of the pension pot ?

Generally, before state pension starts, there's a window during which your taxable income is below the tax allowance, which gives some scope for taking some pension income without paying tax on it.  Using drawdown could let you do that in a flexible way to fit in with any other casual earnings, maximising the tax free amount each year.  But the details of whether that's possible, or worth doing, will depend on your other earnings during these years, and on whether you'll need that money later to add to your state pension.

Annuity will usually be worked out to be "actuarially neutral" - so there should be no systematic advantage to taking it earlier or later. Buying one at a younger age will mean lower payments, but more of them before you die. It's a way to make sure you have a guaranteed income no matter how long you live.  With drawdown, your money remains invested, could grow or shrink, and it's possible for you to spend it all and then have no more to draw down.